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The Social Value of Mortality Risk Reduction: VSL vs. the Social Welfare Function Approach

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  • Adler, Matthew
  • Hammitt, James
  • Treich, Nicolas

Abstract

We examine how different welfarist frameworks evaluate the social value of mortality riskreduction. These frameworks include classical, distributively unweighted cost-benefit analysis—i.e., the “value per statistical life” (VSL) approach—and three benchmark social welfare functions (SWF): a utilitarian SWF, an ex ante prioritarian SWF, and an ex post prioritarian SWF. We examine the conditions on individual utility and on the SWF under which these frameworks display the following five properties: i) wealth sensitivity, ii) sensitivity to baseline risk, iii) equal value of risk reduction, iv) preference for risk equity, and v) catastrophe aversion. We show that the particular manner in which VSL ranks risk-reduction measures is not necessarily shared by other welfarist frameworks, and we identify when the use of an ex ante or an ex post approach has different implications for risk policymaking.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 12-292.

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Date of creation: Mar 2012
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Handle: RePEc:tse:wpaper:25760

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Keywords: Value of statistical life; social welfare functions; cost-benefit analysis; equity;

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  1. Somanathan, E., 2006. "Valuing lives equally: Distributional weights for welfare analysis," Economics Letters, Elsevier, vol. 90(1), pages 122-125, January.
  2. Marc Fleurbaey, 2009. "Assessing risky social situations," LSE Research Online Documents on Economics 27006, London School of Economics and Political Science, LSE Library.
  3. Pratt, John W & Zeckhauser, Richard J, 1996. "Willingness to Pay and the Distribution of Risk and Wealth," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 747-63, August.
  4. Ben-Porath, Elchanan & Gilboa, Itzhak & Schmeidler, David, 1997. "On the Measurement of Inequality under Uncertainty," Journal of Economic Theory, Elsevier, vol. 75(1), pages 194-204, July.
  5. Ulph, Alistair, 1982. "The role of ex ante and ex post decisions in the valuation of life," Journal of Public Economics, Elsevier, vol. 18(2), pages 265-276, July.
  6. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  7. Samuel Fankhauser & Richard Tol & DAVID Pearce, 1997. "The Aggregation of Climate Change Damages: a Welfare Theoretic Approach," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(3), pages 249-266, October.
  8. James Hammitt & Nicolas Treich, 2007. "Statistical vs. identified lives in benefit-cost analysis," Journal of Risk and Uncertainty, Springer, vol. 35(1), pages 45-66, August.
  9. Ralph L. Keeney, 1980. "Utility Functions for Equity and Public Risk," Management Science, INFORMS, vol. 26(4), pages 345-353, April.
  10. Rachel Baker & Susan Chilton & Michael Jones-Lee & Hugh Metcalf, 2008. "Valuing lives equally: Defensible premise or unwarranted compromise?," Journal of Risk and Uncertainty, Springer, vol. 36(2), pages 125-138, April.
  11. Olof Johansson-Stenman, 2000. "On the Value of Life in Rich and Poor Countries and Distributional Weights Beyond Utilitarianism," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(3), pages 299-310, November.
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Cited by:
  1. Adler, Matthew & Treich, Nicolas, 2014. "Consumption, Risk and Prioritarianism," TSE Working Papers 14-500, Toulouse School of Economics (TSE).

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